copy (post) to the ledger prepare the trial...

Chapter 2Explain accounts, journals, and ledgers as they

relate to recording transactions and describe

common accounts

2Copyright (c) 2009 Prentice Hall. All rights reserved.

Record Transactions in the

Journal

Copy (post) to the Ledger

Prepare the Trial Balance


� Basic summary device

� Detailed record of increases and decreases in

specific assets, liabilities, or owner’s equity during

a period


� Journal

◦ Chronological record of transactions

◦ Organized by date

� Ledger

◦ Book (or computer record) of all account activity

◦ Organized by account


� Listing of all accounts and their balances


Accounts are grouped in 3 broad categories:

7

LiabilitiesLiabilitiesOwner’s

equityOwner’s

equityAssetsAssets = +

Copyright (c) 2009 Prentice Hall. All rights reserved.

Economic resources that will benefit the business in the future


Creditors’ claims to assets (debt)


Owner’s claim to the assets

� Capital

� Withdrawals

� Revenues

� Expenses


11

Ledger

Cash

All Individual Accounts Combined Make Up the Ledger

Accounts

payable Common stock

Asset accounts

Liability accounts

Equity a

ccounts


� List of all accounts used by a company along with

the account numbers

12

Acct. # Account title

101 Cash

111 Accounts receivable

150 Equipment

201 Accounts payable

301 Common stock

305 Retained earnings

401 Service revenue

501 Rent expense

525 Advertising expense


13

Define debits, credits, and normal account balances. Use

double entry accounting and T-accounts.


� Record dual effects of each transaction

� Each transaction has a:

◦ Receiving side

◦ Giving side


15

Simple tool for analyzing and determining the balance in a given account

Account Name

(Left Side)

Debit

(Right Side)

Credit

Abbreviated dr Abbreviated cr


� Whether an account is increased by debit or a

credit is determined by the account type

◦ Asset, liability, or equity

� Debits are not good or bad


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Debit CreditDebit Credit

AssetsAssets

+ + --

LiabilitiesLiabilities

OwnerOwner’’ss

equityequity== ++Debit CreditDebit Credit-- ++

Debit CreditDebit Credit-- ++

Copyright (c) 2009 Prentice Hall. All rights reserved. 18

LiabilitiesLiabilities EquityEquityAssetsAssets == ++Debit CreditDebit Credit

+ + --Debit CreditDebit Credit

-- ++Debit CreditDebit Credit

-- ++

NormalNormal

BalanceBalanceNormalNormal


BalanceBalance


19

RevenuesRevenues

-- ++Debit CreditDebit Credit

OwnerOwner’’s s

CapitalCapital

Debit CreditDebit Credit-- ++

WithdrawalsWithdrawals


+ + --ExpensesExpenses


+ + --


Owner’s equity


-- ++

NormalNormal

BalanceBalance

Owner’s

Capital

OwnerOwner’’s s

CapitalCapital___ ___


+++Debit CreditDebit Credit

+ + --Debit CreditDebit Credit

-- ++

NormalNormal


BalanceBalance

RevenuesRevenuesRevenues ExpensesExpensesExpensesWithdrawalsWithdrawalsWithdrawals

+ + --

NormalNormal

BalanceBalance


� Assets

� Withdrawals

� Expenses

� Liabilities

� Capital

� Revenues

21Copyright (c) 2009 Prentice Hall. All rights reserved. 22

Cash

$20,000 $12,000

$8,000


List the steps of the transactions to the ledger

23Copyright (c) 2009 Prentice Hall. All rights reserved. 24Copyright (c) 2009 Prentice Hall. All rights reserved.

� Four parts:

◦ Date of transaction

◦ Title of account debited with dollar amount

◦ Title of account credited with dollar amount

◦ Brief explanation of transaction


Journal Page 1

Date Description Debit Credit

Jul 1 Cash 45,000

Josie Smith, Capital 45,000

Owner investment

Accounts AffectedAccounts Affected

Dollar amount of

debits and credits

Dollar amount of

debits and creditsExplanation of

transaction

Explanation of

transaction

Transaction

Date

Transaction

Date


� Copying amounts from the journal to the ledger


March 22:

� “On account” indicates Accounts receivable

� Accounts receivable is an asset account

� Increase an asset with a debit

28

GENERAL JOURNAL

DATE DESCRIPTION REF DEBIT CREDIT

Mar 22 Accounts receivable 4,000


March 22:

� “Performed services” indicates revenue has been

earned

� Revenues are increased by credits

29

GENERAL JOURNAL


Mar 22 Accounts receivable 4,000

Service revenue 4,000

Performed services on account


March 30:

� Cash is received

� The payment is “on account”

30

GENERAL JOURNAL


Accounts receivable 3,000

Received payment on account

Mar 30 Cash 3,000


March 31:

� A utility bill is an expense

� The bill will be paid later – creating an account

payable

31

GENERAL JOURNAL


Received utility bill

Mar 31 Utilities expense 130

Accounts payable 130


March 31:

� Salaries to employees are an expense

� The salary was paid in cash

32

GENERAL JOURNAL


Cash 2,300

Paid salaries

Mar 31 Salaries expense 2,300


March 31:

� Advertising is another expense

� Cash is paid

33

GENERAL JOURNAL


Mar 31 Advertising expense 400

Cash 400

Paid advertising


� Origin of accounting transactions


Journalize and post sample transactions to the

ledger


Cash Service revenueAccounts receivable

GENERAL JOURNAL




Performed legal services on account


37


GENERAL JOURNAL




Performed legal services on account

9,000 9,000



GENERAL JOURNAL


Cash 5,400



9,000 9,000


39


GENERAL JOURNAL


Cash 5,400



9,000 9,0005,400 5,400

3,600


Prepare the trial balance from the T-Accounts


� Summary of the ledger

� Lists all accounts with their balances

� Accuracy check

◦ Debits should equal credits

� NOT a balance sheet


� Search for missing account

� Divide the difference between debits and credits

by two

� Divide out of balance amount by nine


43

GENERAL JOURNAL


Jan 2 Cash 1,000

Josie Smith, Capital 1,000

Date of

transaction

Accounts debited

and credited

Amounts debited

and credited

Posting

reference


GENERAL JOURNAL Page 1

DATE DESCRIPTION POST

REFDEBIT CREDIT

Jan 2 Cash 101 1,000

Josie Smith, Capital 301 1,000

Cash Account No. 101

Date Jrnl. Ref. Debit Date Jrnl. Ref. Credit

2-Jan J.1. 1,000

Josie Smith, Capital Account No. 301

Date Jrnl. Ref. Debit Date Jrnl. Ref. Credit

2-Jan J.1. 1,000

11

55

44

33

22


45

CASH Acct No. 101

Balance

Date Item

Jrnl

Ref Debit Credit Debit Credit

1-Apr J.1 20,000 20,000

3-Apr J.1 9,000 11,000

5-Apr J.1 3,000 14,000

6-Apr J.1 10,000 4,000

Alternative to the T-Account


copy (post) to the ledger prepare the trial...

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